The Investment Answer includes a combination of investment topics rarely combined in such a concise text. In just 66 pages the authors Daniel Goldie and Gordon Murray ask and answer 5 investing decisions:
- Do it Yourself Decision
- Asset Allocation Decision
- Diversification Decision
- Active vs. Passive Decision
- Rebalancing Decision
A QUICK OVERVIEW
The Do it Yourself Decision gives some inside information into the investment planners’ world. Although Goldie is a financial advisor, and maybe a bit biased towards hiring an investment advisor, he entertained some thought provoking questions; Do you really have the time or constitution to successfully manage your portfolio? Data supports the fact that investors frequently act against their best interests and fall prey to behavioral finance biases such as following the crowd.
Anyone who’s checked out investing knows that diversification and asset allocation spread the investing risk around. Where The Investment Answer excels is in integrating advanced theory into these investing topics. Four types of risk are introduced as well as standard deviation, the statistical measurement of risk. Charts, graphs, examples, and market anomalies cram lots of sophisticated information into two brief chapters. After completing the asset allocation and diversification chapters the reader will grasp the risk/reward relationship, asset classes, and historical returns of various asset combinations.
Chapter 4 continues to add modern portfolio research to the indexing vs. actively managed mutual fund question. See how costs add up and trounce portfolio returns. Finally, the regular task of “rebalancing” one’s portfolio to keep it in line with the initial asset allocation is covered in chapter 5.
For those investors who aren’t satisfied with the basics, Goldie and Murray include their comments on hedge funds, private equity, and commodities. These assets are not for the faint of heart!
CONCLUSION
For a “basic” investing text, the material may be a bit complex. Although, for those who have graduated from Investing 101 as well as investors who are pondering whether to hire an advisor or not, The Investment Answer is the solution. Investment advisors secrets are revealed; a great way to get “inside” information, that’s legal.
One of the greatest strengths of The Investment Answer is the marriage between research-based Modern Portfolio Theory and practical investing concepts. I highly recommend this book to anyone who is looking for not only the “what” of investing but also the “why.”
To learn more about the authors, check out the exclusive interview here.
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Book reviewed by, Barbara Friedberg, editor-in-chief of BarbaraFriedbergPersonalFinance as well as a portfolio manager and MBA professor. She has an MBA in finance and a BS in economics. Friedberg is passionate about financial literacy and wants to share her knowledge and experience with others. Barbara is part of the Yakezie Product Review Team (YPRT).
Hi Barbara,
Thanks for the review! Do the authors share any thoughts on the futility of picking stocks on one’s own, and the importance of simply having a proper asset allocation in section #2?
Hi FS, Yes and Yes. They recommend index funds (low cost), diversified across a variety of asset classes. The authors lay out 6 hypothetical asset allocations in the appendix. The asset allocation and diversification concepts are supported by Modern Portfolio Research.
I guess they also cover value averaging? Without at least some degree of active trading, would passive investing become prone to high volatility due to algorithmic trading? The advantage of passive investing when there is a lot of activity is that you benefit from the movement of capital to where it is efficient, but you don’t pay the fees…
Excellent book review, Barb. This book is probably over my head since I still need to graduate from “Investing 101!” I really need to catch up on this stuff. ;)
[…] 18. Book Review & Giveaway: “The Invest Answer” […]
Great job on the review Barbra. I personally enjoy reading personal finance books and find them helpful in shaping my decisions. I’ll definitely check this book out!
@Kevin-Only way to avoid volatility is to stay in cash (of course then you sacrifice growth). Diversification helps temper volatility.
@Little House-Thanks for checking out the review; I’m glad you enjoyed it.
@Elle-Let us know what you think of the book!
Thanks to all for checking out the review
Completely agree. I’m just wondering what would happen if, say, 90% went to passive funds. Wouldn’t that give more influence to the 10% that still actively traded?
Thank you everyone for your interest in our book! Regarding the popularity of passive management, unfortunately it will never be the dominant method of investing, at least in our lifetimes. Think of it this way: since passive investing became widely available in the early 1970s, it has only grown to an estimated 15-20% of the market, and its growth is slowing.
oh cool! The start of the book reviews and giveways, nice :) I need to think about rebalancing my 401k. Hope the markets continue to rally this coming week!
Great review Barb! Sounds like an interesting read.
@Kevin, Actually, your return will be in direct proportion to the amount invested in the individual funds (ie 20% invested in fund A; 20% of total portfolio return comes from fund A)
@Charlie & Mike-Glad you stopped by to check out the review. The book really is worth reading!
I don’t know if they would send to Egypt but I have done all the steps already for the entries :)….. I want to start investing as soon as the debt is all paid off but don’t have a whole lot of clue where to start off!
Oh, sorry forgot to mention I enjoyed your wrap up / review of the book too :).
Forest, Wonderful question. Wise move, pay off debt first. Next, develop 3-6 months in cash for unexpected events. The third, simplest way to begin while you are getting your feet wet would be to start an automatic transfer of a certain amount monthly to be invested a world stock fund & a broad based bond fund. (check out my investing articles for more specifics). Good luck!
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I know nothing about investing. I’ll definitely have to check out this book for some more in depth strategies/tips. Gotta diversify that portfolio.
Hi Ninja, Yes, it is a great book with lots of meat. If I can offer some shameless self promotion, feel free to stop by my site to pick up my FREE eBook: 20 Minute Guide to Investing :) It’s a quick investing “starter” primer.
This comment doesn’t have to do with the book, but I was wondering what everyone’s oppinion is with silver. It keeps climbing up, do you guys think its still a good investment or do you thing it will crash?
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I already read this great book and the most interesting part is “Active vs. Passive Decision” which realty show you some cool things to do, anyways its an excellent review of this super book.